Why Realtors Don’t Like Real Estate Investors

The meeting took place at a popular local burger hangout near the campus of Arizona State University. Fresh out of a foreclosure boot camp I took in Denver the month before, I scheduled an appointment with a highly motivated Realtor looking for new business.

After the typical pleasantries were exchanged I cut right to the chase. I told this agent I needed someone that could help me find great deals on the multiple listing service. Furthermore, I wanted a Realtor that could write multiple low-ball offers for me every week AND provide comps for each deal. Of course, I’d need to get in to see these houses ASAP if any of my low-ball offers were accepted.

As we wrapped up our lunch this Realtor kindly shook my hand and said he’d get back to me. And I never heard from him again.

I look back on that conversation, which took place about 12 years ago, and smile. Boy, was I a dope. If that Realtor had agreed to work with me it would have been a colossal waste of his time. I had no real estate investing experience, limited capital and vague income goals.

I teach a class for Arizona Realtors called Attracting Investor Clients. Most of the material is focused on helping agents understand the mindset of a real estate investor. After all, we think differently than retail buyers. However, I also spend a great deal of time explaining how to pre-qualify a real estate investor.

Before they ever get on the computer to search for deals, or get in the car to show a property, I advise Realtors to ask the investor these four questions:

What kind of return on investment are you looking for?

How much money do you have to invest?

How long can you keep this money invested?

What’s your exit strategy?

If the investor is unwilling or incapable of answering these questions I recommend the Realtor do the following:

Either ask the investor to call back later with the answers to these four questions.

Or, refer the investor to another agent in the office they don’t like.

Harsh? Maybe. But it’s not realistic or responsible for a Realtor to work with an investor that isn’t clear about return on investment, capital limitations, time limitations and exit strategy.

Since that embarrassing lunch meeting 12 years ago I’ve developed win-win relationships with several Realtors. They like working with me because my expectations are reasonable, my buying criteria is set and I’m decisive. I enjoy working with these agents because they are knowledgeable, good with technology and quick to respond.

That, and they usually buy me lunch.

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About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

Jason, I was fresh out of a boot camp. That’s what the gurus teach newbie investors to do. Like any good Realtor has the time to surf the MLS all day for great deals. But you’re right, as investors we must create win-wins.

As an agent, I value the challenge of finding fixers for my invested client. There is nothing more satisfying than negotiating the deal on a true fixer and nothing more rewarding than being involved in turning that sour lemon into lemon meringue.

Marty – Truly, that original conversation is hilarious, though not uncommon..

My additional input, 5 years ago agents wouldn’t work with investors no matter how much money they had. Today, agents will work with anyone who wants to buy. I used to beg for help, now I just answer the phone. Amazing change in attitude from their side.

Karen, I’m not seeing that here in Phoenix. A good Realtor can spot a pretender right away. Even the higher performing agents here shy away from working with investors because we’re so different from a retail buyer.

Marty,
Great post, real estate agents are truly an investors best friend. I far too often see investors expect agents to jump through hoops and perform miracles. Funny you wrote this blog, the forum just had a thread in the same vain:https://www.biggerpockets.com/forums/21/topics/74296
What a great class you are teaching agents, i love it!

Thanks for the link. It’s funny, when I first started teaching the class three years ago about 5-8 Realtors would show up. Over the last year I’ve averaged about 25-30 agents and I teach the class 2-3 times a month. I’m glad Realtors in Phoenix are finally recognizing the importance investors play in the market and the need to understand how we think.

Real Investors, the ones who have a financial strategy and understand that being an investor is not code for being able to buy a home with “instant equity” (which is what many would-be investors believe happens when you call yourself an “investor”), are great clients to have. I am a Realtor, Investor and Buyer’s Agent for a number of Investors in the Austin area. I have learned the hard way that 70% of the people who call themselves investors have no idea what it means to invest in Real Estate. Often times they are just people who have a small roll of cash in their pocket that they believe entitles them to exemption of all the business rule of real estate that all the other buyers and sellers live by. Not so. Sellers don’t care if you are an investor or you are going to live in the house and sellers don’t care if you have all cash to buy the house either–they are going to get all cash from the bank–either way.

Investors are great–but not every Joe who calls himself an investor has earned the title or even knows what it means. Ask me. tT

Tim, thanks for the comment. I agree. It makes me wonder – when does someone actually become an investor? Is it after their first deal? 5th? 10th? Or does it have to do with their financial strategy? Could be a good blog post and topic for discussion on another day.

Whenever someone calls me about investing, whether they are someone interested in partnering with me on a deal, a client, or just looking to get started, I ask those four questions. It really keeps everyone focused.

Good stuff Marty. Now I understand more why so many Realtors never called me back! 🙂

Ironically, I still have that problem. I buy more property than anyone I know (in my town, that is), but I still seem to be the “kid,” so they don’t think to call me when a deal pops up. I have to track down a Realtor just to show a house to me.

Brilliant post, thank you.
Completely agree with the questions, EXCEPT – exit strategies, in my belief, are extremely local-market oriented. Sometimes, particularly if the investor is from out of state/prefecture/town/country, it’s actually the realtor (if he’s a good one) who’ll need to suggest those. Even the most experienced investor in the world cannot be an expert of every single market, and exit strategies are something that needs to be worked on separately in each and every market.

The agent, to my belief, also needs to sometime correct/fine-tune the investor’s expectations regarding Q3 – while some investors will expect to recycle their money in, say, three, four or five years’ time, based on their experience elsewhere, it’s the realtor’s duty to inform them that, in this market, it may or should take longer.

Ziv, I’ve found the thoughtful investors are comfortable saying they want to fix and flip, or buy and hold. Most have considered a time frame too. What few think about is what kind of ROI they need to get.

Ziv, yes, fixing and flipping is an exit strategy. So is buying and holding. The other two are wholesaling and seller financing. However, I find investors who enlist the help of a Realtor are mostly interested in flipping or holding. They’ve likely never considered wholesaling or seller financing.

Peter, there’s an ongoing debate here on BP about the definition of an investor. Many on this site don’t believe us fix and flippers are really investors. I agree with you. Who cares. Just go out and make some money, save some, and give the rest away.

Well Said Marty, call me what you want, just don’t call me late for dinner! I love what you said, “Just go out and make some money, save some, and give the rest away.” Can I make that my business motto? Give and it will be given unto you!

Sometimes my most successful meetings are the ones where I politely turn down business.

Sadly – there is always someone that will take the bait – and run around like a madman with these unprepared investors.

Your questions to ask are PERFECT! One additional question I would as is “Have you gotten the OK from a mortgage lender to proceed?” If they are CASH buyers – you should request a copy of an account statement – or letter from their banker providing proof of funds.

Gerard, I’m always looking for a reason NOT to work with an investor. If they can answer those four questions (and have proof of funds) we can partner up. Good point about asking for the POF up front. I advise agents to do this but I didn’t write about it here. Figured they knew to do that already.

Thanks for this blog, can someone tell me what amount of money determines a serious investor to a realtor? I have no cash but believe wholesaling NMD which the gurus teach is false hope to beginners. It cost for a coach/mentor and if you do not have money how can you succeed. No money equals no partner. I think its a scam. NMD deals stills requires guidance and thats costly. Some realtors turn their nose down because they do not take the beginner investor seriously.

“No Money Down” still means money is involved , just other people’s Money and Credit. If you have no money and no credit then you just have to get good at identifying good deals and talking to people (Selling them on those deals). Real Estate agents do no money down deals (to them) all the time.

Marty,
Love it when “tell it like it REALLY is” shows up. Today so many people think that they are RE investors, having little down, but a line of credit from a hard money lender. NO CLUE to how it really works, and what a shark pool they are attempting to jump in.
Brilliant article.

That is a great article! I love my investor clients, and I will put on a hard hat and boots for any of them (yeah, you’ve been to those properties, and I am not talking about new construction). You brought a smile to my face thinking of the dear-in-the-headlights look that I get when I ask newbies those questions.

They talk big but when it comes to showing the cash to perform the stories come out.

If you want me to look for something for I make sure that:

1.It is realistic for the area you want to invest in.If everything is trading at an 8 cap then hitting a 9 cap on a fully performing multifamily property is attainable.If you want a turn key 12 cap I know you will be wasting my time.

2.You have the cash to perform once the deal is found.I find making 5,000 to 10,000 earnest money non-refundable once due diligence is over keeps them from hopping to another deal or backing out with cold feet.

3.The type of financing they are wanting to use is not a scam or highly unattainable.Typically this involves an investor talking about 95 to 100% commercial financing.The investor gets excited thinking they can take down a larger deal and then lose 10k to 20k in up front fees to a predatory lender churning fees instead of closing loans.

Joel, I get calls all the time from investors looking for $60,000 houses they can rent out and get a 10-12 cap rate on. I always tell them good luck and if they find any please give me a call so I can get in on the action.

While I appreciate the sentiment and your reply did make me laugh out loud, they’re not shooting in the dark, these things are available, and not only in warzones.

Maybe they’re not realistic for your neck of the woods, but they’re not only basing this assumption on empty promises or dark dangerous lands – there are very reasonable places, even in the US, that still generate these returns (pretax of course) in exchange for a bit of hard work.

Maybe that’s where buyers’ agents can do more than a realtor – the deal mining?

“Some realtors turn their nose down because they do not take the beginner investor seriously.”

If buyers HAVE THE CASH to take down decent size commercial deals I do not mind taking time with them and educating them.

If they have no to little money,are chasing a dream,and do not know what they are doing I don’t have time to deal with them.

I don’t call those people investors.I call those people dreamers.For those people they need to work pro bono for a mentor and then the mentor will eventually fund your first deal after time and trust is built and they feel you are competent enough to take the risk.

Good advice Joel. If you’re reading these comments remember that very few people get started in real estate without a mentor. If you lack the cash/experience to get into investing then find a local investor and help them out (shine their shoes, clean their office, pick up their dry cleaning, mop their floors), whatever it takes. Create a win-win.

Thanks for teaching the Realtor class about working with investors. This relationship goes both ways and it’s hard to find a Realto that understands investor criteria are much different than owner occupant criteria. A %10 discount that won’t Cashflow isn’t a deal for an investor. Many agents don’t understand this.

Tiffany, communication is key. I find many investors have unrealistic expectations. Many Realtors have trouble understanding all the costs associated with a flip (repairs, holding costs, selling costs, etc). If I can help bridge the gap everyone is better off.

I’ve submitted my class outline to the National Association of Realtors for consideration at this year’s NAR conference in Orlando. Hopefully they accept it and I can help educate Realtors nationwide.

Kelly, I highly recommend becoming a Realtor if your intent is to invest in real estate full-time, or if you plan to do more than 6-10 deals a year. I say this because MLS access is crucial for comp analysis. Most successful Realtors don’t have the free time required to analyze every deal you want to write an offer on. Also, you get paid to write your own offers which reduces the acquisition cost.

As an individual looking for a property in Central Florida… let me tell you UPFRONT that I HATE INVESTORS… they are glutting the market with their CASH offers and ONCE AGAIN are driving up the prices of homes. Meanwhile, an individual using traditional financing will always lose the deal… because CASH trumps most offers. Personally, I even believe that FannieMae drags their feet on offers in order to wait for CASH INVESTORS. If I tell a realtor about a property that looks good to them… they will IMMEDIATELY contact their HEDGE-FUND INVESTORS who will bid with a CASH offer. I HATE REALTORS RIGHT NOW… you’re all a bunch of JERKS! Take that to the bank.